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Investors Approach Alcatel to Buy Submarine Cable Business

French phone equipment maker Alcatel-Lucent (News - Alert) SA is attracting a wealth of potential buyers for its submarine-cable business. The company looks to sell by the end of next quarter, with investment firms such as Permira Advisers LLP and PAI Partners SAS (News - Alert) taking on the floundering Alcatel facet.

Lately Alcatel has incurred some losses on the submarine-cable front, so when the company noticed a growing number of parties interested in buying, the decision to sell was easy.

“Alcatel has more than 40 percent market share in submarine cables, in a highly consolidated market. The unit is very profitable, with double-digit margins – that’s well above what the company is getting out of its business overall,” noted Sebastien Sztabowicz, analyst for Kepler Capital Markets.

French sovereign fund FSI is also weighing bids, and many in the industry are commenting on the matter, suggesting the deal could be highly beneficial to all involved.

According to France Telecom (News - Alert) SA (FTE), owning the submarine-cable unit of Alcatel makes “industrial sense,” as the business could turn over $1 billion or more.

Alcatel unfortunately just isn’t in the right place to utilize this part of its business; the company is still in debt by about $3 billion for bonds and loans due in 2015.

So with selling smart on Alcatel’s end, and buying smart on the other, just how will the deal work out?

As of now, there’s really no telling who will end up with the Calais-based (north of Paris) manufacturer for cables, as well as the fleet of vessels which lay the connections involved.

The phone company France Telecom already owns a similar submarine-cable business, and it has hinted at plans to expand this by potentially taking over Alcatel’s unit.

“We’ve expressed our interest for this business, theoretically speaking, because it could make industrial sense, but for now things haven’t moved any further than that,” noted Stephane Richard, CEO at France Telecom.

In addition to its undersea cable business, Alcatel may also sell a unit dedicated to selling phone equipment – again, this would be aimed to staunch recent losses and help the company in making up for its loans in the next two years.

The phone equipment unit Alcatel may let go from its business is reportedly worth over 200 million Euros – almost $270 million

Still, all this potential selling from Alcatel is worrying unions and the French government, which owns a 3.6-percent stake in the company. The submarine-cable unit of Alcatel is considered a “strategic asset” to the country’s governing powers, according to Fleur Pellerin, France’s Digital Technology Minister.

The thinking, then, is the business should remain in French control.

With this in mind, the deal could end up with Alcatel’s submarine-cable business selling to another French company like the FSI.

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